Commodity markets have been around for a long time. Commodity trading started in the U. S. in 1848 at the Chicago Board Of Trade, the world’s first official futures exchange. The purpose of the futures exchange is to provide industries with a valuable cost management tool. It allows producers and the like, to know in advance their approximate cost of doing business. A farmer can sell corn to a speculator on the futures exchange at a decent price, months before his crop is due. This transfers the risk of a big price movement to the speculator. The farmer is hedging against a big price drop which would really hurt his bottom line. Speculation is an honorable profession and a key element to our overall economy.

There are a wide range of futures contracts that can be traded. Everything from grains such as corn, wheat and soybeans to currencies such as the U. S Dollar and British Pound. For a complete list, check out a futures exchange or futures brokerage website. With some futures you can trade minis. Options are also traded.

The reason fortunes can be made, sometimes rather quickly, in the futures market is because of the leverage involved. As an example, you will control 5000 bushels of corn by acquiring one futures contract of corn. Every 1 cent that corn moves is worth 50 dollars. If you were long 1 contract of corn at 3. 00 per bushel and the price moved up to 3. 10, your profit would be 500 dollars.

It’s a double edged sword when you are dealing with this much leverage. It’s absolutely essential you implement sound money management and cut all losses short. You could get wiped out fast if you don’t. The futures market tends to move much faster than the stock market. Add all the leverage involved, this is the major leagues when it comes to trading. Fortunes are made and lost every day in the futures market. To trade in the futures market you need to get an account with a futures brokerage. Then you must put up margin before you can trade. The margin varies a lot depending on what you trade.

I didn’t call the futures market, the major leagues of trading for nothing. Over 90% of traders lose in this market. Two of the main reasons they lose are lack of proper trading knowledge and inadequate money management. I can’t possibly cover everything to do with the futures market and trading it in one article. I will touch on a few successful strategies, methods and techniques. It takes years of proper trading education and experience to become a top trader. I will cover more in future articles.

You need to have at least a basic understanding of technical analysis. Technical analysis is the study of market action primarily through the use of charts. It’s based on 3 premises. Market action discounts everything, prices move in trends and history repeats itself. Newton’s first law of motion states, a trend in motion is more likely to continue than to reverse. This is also true in the marketplace. Chart patterns are based on human psychology. Human nature or psychology never changes. That’s why there are recurring chart patterns which a good technician will take advantage of. The future is a repetition of the past when it comes to the markets.

Here is an example of a basic, yet sound strategy. First, always trade with the major trend. Which direction has the market been moving the last several months to a year or so? Use a weekly chart to find the major trend. If the trend in up, you should only trade from the long side. If the major trend is down, only trade from the short side. You can trade breakouts from a consolidation within the major trend. If gold traded between 800 and 830 dollars per ounce for a couple months, you would go long on a close above 830 if the major trend is up. Go short on a close below 800 if the major trend is down. It’s always best to trade in the direction of the major trend. Other important factors such as seasonal tendencies and analysis of the cash basis should also be implemented into your overall trading plan. Money management is the secret to successful trading. Always cut all losses short. You can use support or resistance levels to place a strategic sell stop. Another method is to place a sell stop below a major trend line if you are long or above a major trend line if you are short.

This is only the tip of the iceberg of what it takes to become an elite trader that consistently makes profits in the marketplace. This is true whether you trade stocks, futures, exchange traded funds or options. You now have a general idea of how the futures market works and some of the strategies and methods used world’s best traders and investors to amass fortunes. I will be writing future articles that deal with specific strategies, methods, techniques and principles used by the world’s best traders and investors, past and present.